I think that we are kicking a dog that would be better left alone.
A "generated" photo will never be consistantly good - there are just too many variables - sharpness of the original, presence of cheatlines, etc.
So, instead of making the default view the medium view, which is of lower quality, how about adding a selector on the thumbnail view, where the person can select SMALL / MEDIUM / ORIGINAL (LARGE). In addition, I would recommend providing the pixel dimensions of the original picture, that way, a person who wants to see picture uploaded at 1400x1000 can decide whether he wants to wait for that big a file, or choose a smaller size. It also would imply that if you want the highest quality image, use the original size.
The only thing you should feel when shooting a terrorist: Recoil.